Wildhorse Corporation issued a 6-year, $58,000, zero-interest-bearing note to Ga

Question

Wildhorse Corporation issued a 6-year, $58,000, zero-interest-bearing note to Garcia Company on January 1, 2017, and received cash of $58,000. In addition, Wildhorse agreed to sell merchandise to Garcia at an amount less than regular selling price over the 6-year period. The market rate of interest for similar notes is 11%.

Prepare Wildhorse Corporation’s January 1 journal entry. (Round present value factor calculations to 5 decimal places, e.g. 1.25124 and final answer to 0 decimal places, e.g. 38,548. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Date

Account Titles and Explanation

Debit

Credit

January 1, 2017

Date

Account Titles and Explanation

Debit

Credit

January 1, 2017

Explanation / Answer

In books of Wildhorse Corporation’s

Discount on Notes payable

[$58,000 + $26991- $58000]

   To Unearned Revenue

[ 58000 - (58000 *0.53464)]

Note:- 1.  Wildhorse agreed to sell merchandise to Garcia at an amount less than regular selling price over the 6-year period, So as per accrued basis income is recorded as unearned revenue at present value

2. present value factor = 1 / (1 + 0.11)6

= 1 / (1.11)6

= 1 / 1.870415

= 0.53464

Date Account Titles and Explanation Debit Credit January 1, 2017 Cash $58,000

Discount on Notes payable

[$58,000 + $26991- $58000]

$26991 To Notes Payable $58,000

   To Unearned Revenue

[ 58000 - (58000 *0.53464)]

$26991

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